Is Juniper Junior-Grade?

Analyst Ed Zabitsky of ACI Research has put a Sell Short recommendation on Juniper Networks Inc. (NYSE: JNPR). Harsh.

Now, some of that has to do with a run-up in stock price. He'd listed Juniper a Strong Buy when the stock traded around $14, back in February -- then Hold at $19, Sell at $23, and now Strong Sell at $26.17. See the pattern?

But Zabitsky is also worried that Juniper isn't keeping up with a shifting market, particularly when it comes to the emergence of packet-optical transport systems (P-OTS), which could have a chance to usurp routers in certain parts of the network. (See Does Juniper Need Packet-Optical?)

"Juniper really saved themselves when they came out with a stronger Ethernet strategy and a VPLS strategy," he says. (See Juniper Storms Into Ethernet Switching.) "But before that point, they were headed south, and I just think they're at the same kind of point here."

Juniper, which declined to comment on Zabitsky's report, has teamed up with Nokia Networks to offer their products in tandem as an IP and DWDM combination. The companies plan to start a joint venture in carrier Ethernet as well. (See NSN, Juniper Converge IP & Optical and NSN, Juniper Plan Ethernet Marriage.)

But Zabitsky sees Juniper as the junior partner in both cases. It's NSN's network management system that will run the Ethernet systems developed by the joint venture. And NSN's OSS is the one in control in the IP/DWDM partnership, which involves interoperability between a Juniper router and NSN's optical transport box.

Of course, Juniper and NSN aren't describing the relationship that way. For example, NSN has told Light Reading that its management system is used in the IP/DWDM partnership for reasons that are practical, not political.

"From a functionality point of view, the transport management system at Layer 1 can look at a wider spectrum of the network than Layer 3," says Pathmal Gunawardana, NSN's director of business development. "With Layer 1, you can also see the Layer 2 and Layer 3 [parts of the network], and potentially even Layer 4."

Separately, Zabitsky has his doubts about the chances of the Ethernet joint venture. "I get the sense that the combined entity has some seriously heavy lifting to do. Tell me the last time a successful, fully integrated product came from two companies."

In addition to worrying about new product areas, Zabitsky sees trouble for Juniper in its router franchise, thanks to market-share advances from Alcatel-Lucent (NYSE: ALU). "There's no question in my mind that Alcatel-Lucent is pushing Juniper out of the way, very slowly and steadily," he says.

It's not as if Zabitsky's Sell Short rating is part of a trend. Most analysts have Juniper rated a Hold, according to Thomson Reuters .

Here's the breakdown -- which, by the way, doesn't include ACI. We threw in a Cisco Systems Inc. (Nasdaq: CSCO) comparison just for fun, although we should point out that Cisco and Juniper aren't on the same plane when it comes to Wall Street.

Table 1: Analyst Recommendations
Rating # of brokers:
# of brokers:
Strong Buy 7 14
Buy 5 8
Hold 23 14
Underperform 2 1
Sell 0 1
Source: Thomson Reuters

If you're curious, the one Sell recommendation on Cisco comes from Per Lindberg of MF Global Securities Ltd. He's the fellow who railed against the merger of Alcatel and Lucent in 2006. (See Analyst: Alcatel Should Rethink Things and Could CDMA Hurt Alcatel Lucent?)

— Craig Matsumoto, West Coast Editor, Light Reading

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